The Federal Trade Commission today accused T-Mobile US of issuing “bogus charges” to mobile phone customers and making hundreds of millions of dollars in the process.

The charges, which T-Moibile disputes, concern “premium” SMS subscriptions that in many cases were not authorized by customers, the FTC said in an announcement. The commission filed a lawsuit against the cellular carrier in US District Court in Western Washington (see full complaint), asking for an order that would bar T-Mobile from continuing this practice and force the company to pay back customers.

Further Reading

“In a process known as ‘third-party billing,’ a phone company places charges on a consumer’s bill for services offered by another company, often receiving a substantial percentage of the amount charged,” the FTC said. “When the charges are placed on the bill without the consumer’s authorization, it is known as ‘cramming.’”

According to today’s complaint, T-Mobile “earned hundreds of millions of dollars from Third-Party Subscriptions” and “T-Mobile’s practices have caused consumers millions of dollars of injury.” T-Mobile was charged with violating the FTC Act through use of deceptive acts and practices and unfair billing practices.

The “Un-carrier”

T-Mobile has promoted itself as the nation's "Un-carrier," arguing that it treats customers better than rivals Verizon Wireless, AT&T, and Sprint. Sprint and T-Mobile have been talking to each other about a merger that would leave the US with three major carriers.

All four major carriers agreed to stop billing for most premium text services in November under pressure from regulators.

T-Mobile CEO John Legere last November said, "We believe in making things right for our customers," when T-Mobile announced a "Premium Services Refund Program." T-Mobile last month said it would "proactively reach out to customers who were billed for these third party services to give them the opportunity to request a refund for any unauthorized charges."

The FTC said T-Mobile “received anywhere from 35 to 40 percent of the total amount charged to consumers for subscriptions for content such as flirting tips, horoscope information or celebrity gossip that typically cost $9.99 per month."

T-Mobile did not obtain authorization from consumers before charging them for these third-party subscriptions, according to the FTC, which said the practice continued until at least December 2013. "At least two other mobile carriers" stopped allowing Wise Media on their networks a year before the FTC sued the company in April 2013.

T-Mobile bills were sometimes longer than 50 pages and difficult to interpret, making it hard for consumers to detect fraudulent charges, the FTC said. T-Mobile did receive many complaints and requests for refunds but allegedly allowed the practice to continue.

“T-Mobile was charging consumers for services that had refund rates of up to 40 percent in a single month,” the FTC said. “[B]ecause such a large number of people were seeking refunds, it was an obvious sign to T-Mobile that the charges were never authorized by its customers.”

Even after receiving complaints, the FTC alleges “that T-Mobile in many cases failed to provide consumers with full refunds” and “in other cases instructed consumers to seek refunds directly from the scammers—without providing accurate contact information to do so.”

In still other cases, “T-Mobile claimed that consumers had authorized the charges despite having no proof of consumers doing so,” the FTC said. After receiving complaints about particular subscriptions, T-Mobile allegedly continued to charge other consumers for the same subscriptions without obtaining authorization from the customers or notifying them of the charges. T-Mobile even continued to charge consumers for subscriptions after receiving alerts from auditors about the services, the complaint said.

“For example, one alert highlighted a purportedly free Facebook application that claimed it allowed users to see who views their Facebook profiles most frequently,” the lawsuit states. “The application required users to complete a short ‘survey' that included entering their mobile phone number. The application never revealed who viewed the users’ Facebook profiles, but users were charged for a Third-Party Subscription despite the application’s claim of being free. Defendant has continued to charge consumers for the subscription and other subscriptions purportedly offered by the same third-party merchant after receiving this alert.”

T-Mobile’s “own internal documents demonstrate that consumers were complaining in increasing numbers about unauthorized charges from at least early 2012,” the lawsuit states. “These documents state that there had been an increase in complaints, explain that consumers ‘do not know what the charges are or why they are being billed for them,’ and note several third-party merchants that Defendant’s employees had identified as being the subject of many complaints. Despite knowing about these complaints of unauthorized charges, Defendant did not take sufficient steps to determine whether other consumers actually authorized the charges for Third-Party Subscriptions purportedly offered by the problematic third-party merchants.”

“It’s wrong for a company like T-Mobile to profit from scams against its customers when there were clear warning signs the charges it was imposing were fraudulent,” FTC Chairwoman Edith Ramirez said in the commission's announcement. “The FTC’s goal is to ensure that T-Mobile repays all its customers for these crammed charges.”

UPDATE: Legere responded to the FTC's complaint in a blog post, calling it "unfounded and without merit." Yet he admitted that T-Mobile did bill for the premium text services—until it stopped doing so.

"In fact T-Mobile stopped billing for these Premium SMS services last year and launched a proactive program to provide full refunds for any customer that feels that they were charged for something they did not want," he wrote.

Legere did not mention in his blog post T-Mobile's action only came after regulatory pressure that led to an agreement between the carriers and attorneys general in 45 states.